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Two incentive entrepreneurs have interested a group of venture capitalists in backing a new business project. The proposed plan would consist of a series of international retail outlets to distribute and service a full line of ingenious home garden tools. The stores would be located in high-traffic cities in Latin America such as Panama City, Bogota, Sao Paulo, and Buenos Aires. Two financing plans have been proposed by the entrepreneurs. Plan A is an all-common-equity structure. Five million dollars would be raised by selling 160,000 shares of common stock. Plan B would involve the use of long-term debt financing. Three million dollars would be raised by marketing bonds with an effective interest rate of 14 percent. Under the alternative, another $2 million would be raised by selling 64,000 shares of common stock. With both plans, $5 million is needed to launch the new firm's operations. The debt funds raised under plan B are considered to have no fixed maturity date, because this portion of financial leverage is thought to be a permanent part of the company's capital structure. The two promising entrepreneurs have decided to use a 35 percent tax rate in their analysis, and they have hired you on a consulting basis to do the following:
a. Find the EBIT indifference level associated with the two financing proposals.
b. Prepare income statements for the two plans that proves EPS will be the same regardless of the plan chosen at the EBIT level found in part a.
What is the value of the interest rate swap to the party that receives the fixed-rate payment and pays the floating-rate payment? What is the value of the same interest rate swap to the party that receives floating and pays fixed?
Organizations merge and grow bigger and differentiate, which can cause problems in functional structure.
Jarel purchased 80% of the outstanding voting stock of Suarez for $260,000. Of this payment, $20,000 was allocated to equipment that had been undervalued on Suarez's books by $25,000.
Evaluate the time it takes to save $10,000 if you know you can save $300 per month in a bank account paying 10 percent interest.
The Houston Corp. needs to raise money for an addition to its plant. It will issue 300,000 shares of new common stock. The new shares will be priced at $60 per share with an 8.5% spread on the offer price. Registration costs will be $150,000.
Suppose you borrowed $12,000 at a rate of 9% and must repay it in 4 equal installments at the end of each of the next 4 years. How much interest would you have to pay in the first year?
AEI Incorporated has $9 billion in assets, and its tax rate is 35%. Its basic earning power (BEP) RATIO is 12%, and its return on assets (ROA) is 6%. What is AEI's times-earned (T/E) ratio? Round answer to two decimal places and show step-by-step ..
Analyst's expect Twindle's dividends to grow by at least 5% per year for the next 5 years. Using the capital asset pricing model, what is Twindle's cost of retained earnings?
a) A bond issued in the United States pays coupons four times per year (thus, pay coupons quarterly). It has a 20-year maturity, its annual coupon rate is 8 percent, and it is selling to yield 6 percent. What is the current price of the bond?
Suppose that transaction costs are zero, there are no barriers to trade and that Chinese products are identical to British items, would you expect the Yuan to appreciate,
Mr. Beltram's payments increase by 10% each year. Find the balance on the loan immediately following his fiftieth payment.
The old press was purchased 2 years ago for an installed cost of $35,000 and can be sold for $20,000 net of any removal costs today. Both presses are depreciated under the MACRS 5-year recovery schedule. The firm is in 40 percent marginal tax rate..
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